Japan LNG buyers ‘land more flexible terms’

Electricity companies in Japan have won provisions allowing them to divert contracted LNG cargoes if they restart nuclear reactors shut since the 2011 Fukushima disaster, Reuters has reported, setting a precedent as more LNG contracts come up for renewal.

Japan is the world’s top LNG importer. Its buyers are using that clout to win more flexible terms as their supply terms come up for renewal. The combination of the planned nuclear restart and growth in renewables will reduce domestic LNG demand, leaving Japan’s giant utilities with a supply glut. The buyers need more flexible contracts to sell on that over-supply.

The more general LNG oversupply – estimates suggest that an additional 25-32 million tonnes (mt) of LNG will come to market this year – has strengthened Japan’s hand in negotiating new terms.

Data from the International Group of LNG Importers (GIIGNL) show several long-term supply contracts due to expire from 2016-2018, including those for buyers Chubu Electric, Tohuku Electric and Shizuoka Gas with suppliers including Woodside Petroleum and Petronas, and more will end by 2022.

Reuters reports that Japanese buyers are being offered creative new contract terms, including the restart provision, as an incentive to secure future supply. Japan has restarted just two reactors since the incident at Fukushima. Relicensing has taken longer than many analysts expected, but up to six could restart this year, the news agency reports.